At 18, you’re an adult, and you might need a car for running errands, attending classes, or getting to work. Understandably, you have no credit, having never carried a credit card or taken a loan. You want to buy a car, but you’re in a dilemma. How do you qualify for financing with no credit at such a tender age?
While it can be difficult for you to get a loan without an established good credit history, it’s still possible if you try hard. When you do, the lender will charge you a higher interest rate than the individual with a proven track record repaying their loans. This article discusses how to buy a car at 18 with no credit, expounding on the various ways they can access financing. Keep reading for more information.
- Step 1: Looking for Ways to Finance a Car
- Step 2: Shopping Around for Car Loans
- Step 3: Picking a Car Fit for an 18-Year-Old
- Step 4: Completing the Paperwork
- Step 5: Registering the Vehicle in Your Name
- Alternatives to Getting a Car Loan
- Frequently Asked Questions (FAQ)
Step 1: Looking for Ways to Finance a Car
There are different sources of auto loans for individuals who have turned 18 and have no credit. The first step to buying a car is to look for where you can get car financing. The following are some of the available options:
1) Working with a Co-Signor
Getting a co-signor is one of the best ways to convince a lender to advance you the money to buy a car. Since you have no history, the co-signor will vouch for you as someone who can pay debts. By signing against your loan application form, a co-signor makes it possible for you to borrow using their credit history. If you fail to repay the loan, the lender may ask the co-signor to stand in for you.
Get a co-signor who is close enough to you, possibly a relative. You can then work to maintain their trust by responsibly repaying the loan. If you default on the loan, the co-signor will make payments. Late payments will also affect their credit score since the loan amount is counted among their debts.
In this arrangement, a co-signor borrows money and gives it to you to buy a car. So be sure to have the funds you need to make loan payments when they fall due. With that, you’ll build, strengthen, and maintain a good relationship with the co-signor.
2) Request for Special Dealer Financing
Some auto manufacturers have special programs for students and first-time car buyers. Before granting this type of financing, lenders want to be sure that you can repay it on time. While some lenders may insist on checking your credit history, others have no problem lending to an 18-year-old with no credit. They may consider factors such as your GPA and income.
Since you have little or no income, the lender may charge you higher interest rates on these loans. For an eighteen-year-old, that may make the loan impossible to repay. However, some lenders offer discounts to students who consistently keep their GPAs at a certain level. Working with such a lender can be the easiest way to buy a car at 18 with no credit. The loan amount may range between $15,000 and $20,000, meaning sticking to low-cost vehicles.
3) Consider Credit Unions or Community Banks
Credit unions and community banks will likely treat your loan application with leniency compared to the big commercial banks. Since not all lenders in this category can finance an 18-year-old to purchase a car with no credit, be sure to look for one that works with first-time car buyers. With that, you can be sure that your “no-credit” status won’t impede your loan application.
For these lenders, your credit score won’t matter. Instead, other factors like monthly utility bills, pay stubs, and job stability is of greater interest. The lender would also want to know why an 18-year-old individual like you has no credit history. After assessing your application, the lender decides whether or not to advance the loan to you.
4) Look for Lenders Specializing in First-Time Borrowers
Before you know how to buy a car at 18 with no credit, you need to look for lenders specializing in borrowers like you. The market is saturated with lenders who have no problem working with people with little or no credit. Why can’t you find and apply for a loan from one of them? However, despite you being 18 with no credit, the lender would want you to prove that you can repay the loan. That’s why you should carry pay stabs and other documents proving that you have a stable income.
Step 2: Shopping Around for Car Loans
Lenders have different eligibility requirements for 18-year-olds who wish to buy a car with no credit. It’s essential to shop around for available deals from other lenders who accept to advance car financing to individuals like you. It is a mistake to sign a contract with the first lender that accepts to lend you money. Doing so could expose you to higher interest rates, short loan terms, and restrictions on the car you can buy.
Avoid paying too much attention to the monthly payment as you look for good deals. The best place to look to prevent overspending is the total cost of the vehicle. If, for example, you plan to buy a $15,000 car but notice one going for $18,000 when you reach the dealership. Initially, your monthly payment would have been $287 for 60 months at a 5.5% APR. Now you have to pay $344 months for an $18,000 loan, resulting in $438 extra and the $3,000 price difference.
Step 3: Picking a Car Fit for an 18-Year-Old
Eventually, you’ll have to choose a suitable car. As an 18-year-old with no credit, the amount of financing you get could be too low, limiting the make and model of the car you can buy. However, that doesn’t mean accepting the first car you come across. Assess several cars to see if they meet your needs. If all you want is to use the vehicle to attend classes, a small car will do. You may also want a vehicle that’s big enough to carry several people. Make sure you make the right choice of vehicle.
Even as you choose a vehicle, avoid a brand-new car. Understandably, the mere sight of a new car will likely excite you into buying it. You could be blinded by the different ways you can customize the vehicle to deliver outstanding results. These teens do not know how quickly a car loses value (20% depreciation in the first years). The better alternative is to save money by buying a safe and reliable used car.
As part of the car buying process, consider the prices. Car prices vary for various reasons, including the car make, model, and included accessories. Before settling for a new car, do your research. Check with multiple dealers to know how much they’re charging for different types of vehicles.
If you do not check the prices, you may end up overspending. Therefore, as you plan to buy a car, it’s crucial to create and stick to a realistic budget. You should only spend money on a vehicle you can afford without hurting your financial security. If you overshoot your budget, you might end up struggling to repay the loan.
Step 4: Completing the Paperwork
Once you’ve got approval from a suitable lender and chosen a car, the next step is to complete the paperwork. Essentially, the lender asks for specific documents, which you must avail as part of your loan application. It would help if you filed the following documents:
- The loan application
- Driver’s license
- Pay stabs,
- Proof of regular income,
- Proof of residence
- Tax TIN
- Method of down payment (if any)
- Proof of insurance
Since you’re 18 with no credit, the lender will not bother looking at your credit history. You’ll sign the loan form and wait for the lender to disburse the money. After that, you can pay for the car and start the process of transferring it to your name.
Step 5: Registering the Vehicle in Your Name
You have secured financing and paid for the car. Why don’t you register it with your local DMV? Different states have different requirements regarding the documents to submit and fees to pay. In most cases, the DMV would want you to provide proof of residence and insurance. That means you should take precautions and obtain car insurance if you already have coverage.
If you want, you might ask your parents to add you to their insurance, which is the cheaper option. Alternatively, you can secure coverage for yourself. Luckily, you could get a discount from an insurance company to maintain a good GPA in school or complete a safe-driving program. However, before going out to secure auto insurance, research the discounts for which you qualify. After getting a quote from the insurance company, decide whether you or your parents will foot the bill.
Now that you’ve obtained auto insurance, it’s time to register the car in your name. To do that, the DMV recommends that you check for outstanding issues such as insurance or property tax lapses. Since you’re an 18-year-olds, it’s unlikely that you have any of these issues. The following are the documents you need to present to the DMV:
- Proof of insurance
- Completed registration application form
- Bill of sale
- Original vehicle title
- Required fees
Once you have presented all the necessities, the DMV will take time to process your application for registration. That may take at least five days, depending on the state in which you reside. If your vehicle has an out-of-state title, the DMV may require you to drive the car into an emissions test center with an inspection fee.
Alternatives to Getting a Car Loan
You know how to buy a car at 18 with no credit, but you’re still unsuccessful. It’s normal for your quest to drive your vehicle can falter after you get denied an auto loan for being 18 with no credit. That doesn’t mean you’ll never own a car in your lifetime! Here are alternative ways to get the vehicle you’re looking for:
- Save and Pay Cash: With this alternative, you should be ready to take time and save enough money to pay cash. That means working hard and exercising utmost patience to raise the required capital. The good thing with that is that you’ll own a vehicle without necessarily getting into debt.
- Take a Loan from Your Parents: Who knows? Your parents might have money to spare, which they can lend to you. If they do, go ahead to buy a car as you plan how you’ll repay them. Or, they could give you a grant!
- Partner with Your Parents: Instead of borrowing money from your parents, why don’t you start saving. Once you have saved more than half the price of your dream car, approach them to top it up for you. that way, you will significantly shorten your journey to becoming a car owner.
Frequently Asked Questions (FAQ)
How can I get a car with no credit at 18?
You can get a car with no credit at 18 by looking for lenders specializing in people with no credit. Alternatively, you could go for dealers, automakers, or lenders with special offers for students and first-time buyers. Your local community bank or credit union can also come in handy.
Is it impossible to buy a car with no credit?
No, it’s not impossible to buy a car with no credit, especially if you can prove you have a steady income and can pay for the vehicle. That’s because you have no credit, on which the lender can rely to make a decision.
How hard is it for an 18-year-old to get a car loan?
It can be challenging for an 18-year-old to get a car loan since they have no credit history. Most lenders want you to have a running credit history of two years or more. However, an 18-year-old can still get a car loan if they prove they can pay it.
While it may seem impossible for an 18-year-old with no credit to buy a car, taking the proper steps makes it possible. This article has provided a comprehensive guide to help you know how to buy a car at 18 with no credit. If you follow it to the latter, you’ll get for yourself a car. Even if you don’t get a car, you’ll at least have learned something. With time, you’ll build your credit and qualify for auto financing the next time you need it.